After reading this, you’ll definitely want to sign up for the webinar we recently titled: Life Insurance and FIAs; bridging the gap between Linked Benefits. It’s a webinar explaining the use of life insurance and FIAs to provide LTC benefits.

One of my new favorite sites to read is zerohedge.com. Late last week they posted an article with the above heading and it alerted me to the fact that Penn Treaty Network of America Insurance is going to be liquidated.

If you want to read the letter Penn wrote to their policy holders notifying them of liquidation and what will happen to their benefits under their polices, click on the following link (it’s a scary letter if you are a policy holder):

From the article written by Tyler Durden, there are a number of disturbing facts:

-The court’s decision to liquidate the insurance carrier (it will cease to exist) leaves solvent insurers, their owners, and customers to pick up the cost for more than 70% of the up to $4.6 billion in projected long-term-care claims expected for 76,000 aging Penn Treaty customers nationwide.

-Policyholder claims will be paid through the state guaranty association system, subject to statutory limits and conditions.

-One reason the company failed is because it assumed it would generate a return of 7.5% on its investment which did not materialize in our very low bond yield environment.

-Also, like other TLC companies, claims greatly exceeded expectations and they over-estimated the policy lapse rate.

-The Pennsylvania Insurance Department determined that therate increases needed to remedy the company’s financial difficulties exceeded 300% on average and this would severely harm policyholders and would not be permitted (leaving no alternative other than to place the company into liquidation).

Death Spiral for “traditional” LTC?

The author pointed out that there are about $2 trillion worth of LTC claims that will need to be covered at some point in the future.

The question is will there be any insurance companies left to pay these claims or will the government have to step in to bail the industry out? And if a bailout is needed, what will happen to the benefits provided?

These are all discussion points advisors should be talking about with clients.

Part of that discussion needs to be about alternative products that might not provide the same benefit as a traditional LTC product, but still provide a decent benefit “if” the benefit is needed. If the benefit is not needed then the client will have the use of their annuities or cash value life insurance policies (although you can get an LTC rider on a term policy now).